$A forges fresh highs as traders eye US70c

In Australia, meanwhile, bond traders have abandoned the chance of the Reserve Bank cutting rates in 2024 and imply a 77 per cent chance of a 14th increase in the cash rate to 4.6 per cent by June next year. On Monday, Treasurer Jim Chalmers also appointed British central banker Andrew Hauser as second in charge at the central bank.

AMP chief economist Shane Oliver said he was also optimistic about the outlook for the Australian dollar, saying short-term interest rate differentials looked likely to shift in favour of the local currency.

That’s after the RBA raised the cash rate to 4.35 per cent early this month, saying that inflation was still too high. It also warned that it would tighten further again depending on the economic data.

US70¢ within reach

“We expect the combination of a slightly more hawkish RBA, a falling $US
at a time when the $A is undervalued and positioning towards it still short
to push the [currency] higher into next year, likely taking it back above US70¢,” Mr Oliver wrote in a note to clients.

Investors are awaiting a flurry of potentially market-moving inflation data in Australia, Europe, and the US this week, to help gauge when central banks might start cutting rates.

On Wednesday, the Australian Bureau of Statistics will release the October monthly consumer price index. The report will give only a partial picture because many categories, including services, are not surveyed.

But Commonwealth Bank’s head of Australian economics Gareth Aird said it would still help the central bank ascertain whether inflation was moderating. His forecast is in line with the consensus of a 5.2 per cent pace over the year, cooling down from 5.6 per cent in September.

On Thursday, the eurozone will release its inflation figures with forecasts suggesting a preliminary consumer price index reading of 2.8 per cent in the 12 months to November, from 2.9 per cent.

The European Central Bank is widely expected to leave the deposit rate at 4 per cent next month and markets are ascribing a 60 per cent chance of a rate cut by April.

Core index tipped to slow

The US will close the week on Friday with the core personal consumption expenditures price index, one of the measures tracked by the Fed for its 2 per cent inflation target. It is expected to slow to an annual rate of 3.5 per cent in the 12 months to October, from 3.7 per cent in September.

Mr Oliver said another factor that would drive the Australian dollar higher was commodity prices which he said looked to be “embarking” on a new super cycle.

Iron ore prices climbed to an intraday top of $US133.35 on Monday after hitting $US134.67 last week on hopes that China’s latest support for the troubled property sector would boost sentiment and contribute to further price gains. Iron ore prices dropped below $US100 in August.

The Australia dollar is sensitive to news out of China because it is Australia’s biggest customer of commodities, particularly iron ore.